UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-21088
VICAL INCORPORATED
______________________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 93-0948554
______________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9373 Towne Centre Dr., Suite 100, San Diego, California 92121
______________________________________________________________________________
(Address of principal executive offices) (Zip code)
(619) 453-9900
______________________________________________________________________________
(Registrant's telephone number, including area code)
Not Applicable
______________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days -- Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 1998
----- ----------------------------
Common Stock, $.01 par value 15,815,415
VICAL INCORPORATED
FORM 10-Q
TABLE OF CONTENTS
PAGE NO.
--------
COVER PAGE............................................................................ 1
TABLE OF CONTENTS..................................................................... 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets as of June 30, 1998, and December 31, 1997........................ 3
Statements of Operations for the Three Months Ended June 30, 1998 and
1997, and for the Six Months Ended June 30, 1998 and 1997........................ 4
Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997......... 5
Notes to Financial Statements.................................................... 6
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................ 7
ITEM 3.
Quantitative and Qualitative Disclosure About Market Risk....................... *
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings....................................................... *
ITEM 2. Changes in Securities................................................... *
ITEM 3. Defaults upon Senior Securities......................................... *
ITEM 4. Submission of Matters to a Vote of Security Holders.................... 12
ITEM 5. Other Information....................................................... *
ITEM 6. Exhibits and Reports on Form 8-K....................................... 12
SIGNATURE............................................................................ 13
EXHIBIT LIST......................................................................... 14
* No information provided due to inapplicability of item.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VICAL INCORPORATED
BALANCE SHEETS
June 30, December 31,
1998 1997
(Unaudited)
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 10,146,005 $ 12,157,149
Marketable securities - available-for-sale 33,523,536 33,397,482
Receivables and other 1,189,361 1,566,532
------------- -------------
Total current assets 44,858,902 47,121,163
------------- -------------
Property and Equipment:
Equipment 5,012,675 4,966,955
Leasehold improvements 1,558,554 1,587,554
------------- -------------
6,571,229 6,554,509
Less--accumulated depreciation and amortization (4,625,813) (4,334,224)
------------- -------------
1,945,416 2,220,285
------------- -------------
Patent costs, net of accumulated amortization 1,247,471 1,247,059
Other assets 135,574 102,500
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$ 48,187,363 $ 50,691,007
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,392,436 $ 1,424,603
Current portion of capital lease obligations 449,457 448,261
Current portion of notes payable 213,773 213,773
Deferred revenue 750,000 178,261
------------- -------------
Total current liabilities 2,805,666 2,264,898
------------- -------------
Long-Term Obligations:
Long-term obligations under capital leases 839,763 911,794
Notes payable 160,330 320,660
------------- -------------
Total long-term obligations 1,000,093 1,232,454
------------- -------------
Stockholders' Equity:
Preferred stock, $0.01 par value--5,000,000 shares authorized--
none outstanding - -
Common stock, $0.01 par value--40,000,000 shares authorized--
15,815,415 and 15,731,316 shares issued and outstanding at
June 30, 1998 and December 31, 1997, respectively 158,154 157,313
Additional paid-in capital 78,130,651 77,267,971
Accumulated other comprehensive income 4,272 24,028
Accumulated deficit (33,911,473) (30,255,657)
------------- -------------
Total stockholders' equity 44,381,604 47,193,655
------------- -------------
Total Liabilities and Stockholders' Equity $ 48,187,363 $ 50,691,007
------------- -------------
------------- -------------
3
VICAL INCORPORATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ------------ ----------
Revenues:
License/royalty revenue $ 548,170 $ 473,250 $ 3,080,145 $ 798,130
Contract revenue 11,500 393,351 211,860 1,194,926
----------- ----------- ----------- -----------
559,670 866,601 3,292,005 1,993,056
----------- ----------- ----------- -----------
Expenses:
Research and development 3,058,086 2,796,978 6,152,924 5,591,412
General and administrative 1,014,332 880,622 1,981,398 1,777,212
----------- ----------- ----------- -----------
4,072,418 3,677,600 8,134,322 7,368,624
----------- ----------- ----------- -----------
Loss from operations (3,512,748) (2,810,999) (4,842,317) (5,375,568)
Interest income 619,770 597,292 1,271,495 1,207,369
Interest expense 41,770 53,241 84,994 100,957
----------- ----------- ----------- -----------
Net loss $(2,934,748) $(2,266,948 ) $(3,655,816) $(4,269,156)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per share (basic and diluted--Note 2) $ (.19) $ (.15) $ (.23) $ (.28)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares used in computing net
loss per share 15,789,206 15,447,949 15,771,298 15,435,491
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
4
VICAL INCORPORATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended
June 30,
-------------------------------
1998 1997
--------------- ------------
OPERATING ACTIVITIES:
Net loss $ (3,655,816) $ (4,269,156)
Adjustments to reconcile net loss to net cash provided from
(used in) operating activities:
Depreciation and amortization 467,202 449,207
Write-off of abandoned patent costs 60,144 -
Change in operating assets and liabilities:
Receivables and other 377,171 361,702
Accounts payable and accrued expenses (32,167) (143,800)
Deferred revenue 571,739 (556,521)
------------- ------------
Net cash used in operating activities (2,211,727) (4,158,568)
------------- ------------
INVESTING ACTIVITIES:
Marketable securities (145,810) (2,155,634)
Capital expenditures (16,253) (327,835)
Deposits and other (4,074) 203,976
Patent expenditures (86,501) (132,589)
------------- ------------
Net cash used in investment activities (252,638) (2,412,082)
------------- ------------
FINANCING ACTIVITIES:
Principal payments under capital lease obligations (249,970) (243,848)
Payments on notes payable (160,330) (53,443)
Issuance of common stock, net 863,521 218,187
------------- ------------
Net cash provided from (used in) financing activities 453,221 (79,104)
------------- ------------
Net decrease in cash and cash equivalents (2,011,144) (6,649,754)
Cash and cash equivalents at beginning of period 12,157,149 12,609,277
------------- ------------
Cash and cash equivalents at end of period $ 10,146,005 $ 5,959,523
------------- ------------
------------- ------------
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Equipment acquired under capital leases $ 179,135 $ 239,608
------------- ------------
------------- ------------
5
VICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Vical was incorporated in April 1987 and has devoted substantially all of
its resources since that time to its research and development programs.
The Company is currently focusing its resources on the development of its
direct gene transfer and related technologies.
BASIS OF PRESENTATION
The information contained herein has been prepared in accordance with
instructions for Form 10-Q. The information at June 30, 1998, and for the
three-month and six-month periods ended June 30, 1998 and 1997, is
unaudited. In the opinion of management, the information reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. All such adjustments are of
a normal recurring nature. Interim results are not necessarily indicative
of results for a full year. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. For a presentation including
all disclosures required by generally accepted accounting principles,
these financial statements should be read in conjunction with the audited
financial statements for the year ended December 31, 1997, included in the
Vical Incorporated Form 10-K filed with the Securities and Exchange
Commission.
2. NET LOSS PER SHARE
Net loss per share (basic and diluted) for the three-month and six-month
periods ended June 30, 1998 and 1997, has been computed using the weighted
average number of common shares outstanding during the respective periods.
Diluted loss per share does not include any assumed exercise of stock
options as the effect would be antidilutive.
3. COMPREHENSIVE INCOME
The Company implemented Statement of Financial Accounting Standards No.
130 "Comprehensive Income" effective January 1, 1998. This statement
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. Accordingly, in addition to reporting net income
(loss) under the current rules, the Company is required to display the
impact of any unrealized gain or loss on marketable securities as a
component of comprehensive income and to display an amount representing
total comprehensive income for each period presented. In interim
financial results, this information is allowed to be presented in the
notes to the financial statements. For the three-month periods ended June
30, 1998 and 1997, other comprehensive (loss) income was ($19,061) and
$127,426, respectively, and total comprehensive loss was $2,953,779 and
$2,139,522, respectively. For the six-month periods ended June 30, 1998
and 1997, other comprehensive (loss) income was ($19,756) and $9,990,
respectively, and total comprehensive loss was $3,675,572 and $4,259,166,
respectively.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Vical was incorporated in April 1987 and has devoted substantially all of its
resources since that time to its research and development programs. The
Company is focusing its resources on the development of its direct gene
transfer and related technologies. Currently, the Company is developing its
ALLOVECTIN-7, LEUVECTIN and VAXID cancer product candidates internally, while
developing vaccine product candidates for infectious diseases primarily in
collaboration with corporate partners Merck & Co., Inc. ("Merck") and Pasteur
Merieux Connaught ("PMC"). In February 1998, the Company and Centocor, Inc.
entered into a license agreement allowing Centocor, Inc. to use Vical's naked
DNA technology to develop and market certain gene-based vaccines for the
potential treatment of certain types of cancer. To date, the Company has not
received revenues from the sale of products. The Company expects to incur
substantial operating losses for at least the next several years, due
primarily to expansion of its research and development programs and the cost
of preclinical studies and clinical trials. As of June 30, 1998, the
Company's accumulated deficit was approximately $33.9 million.
Vical has formulated ALLOVECTIN-7, a complex containing the gene encoding a
particular human histocompatibility antigen, HLA-B7, and a lipid material to
facilitate gene uptake. After direct injection of ALLOVECTIN-7 into a tumor,
the Company believes that the HLA-B7 gene will cause the tumor cells to
produce the HLA-B7 antigen. This gene expression may then trigger a potent
cellular immune response against the tumor cells.
In May 1998, the Company initiated registration-supportive expanded Phase II
and Phase III multi-center clinical trials in certain patients with
metastatic melanoma. Either or both of the pivotal trials could support
initial product registration if endpoints are achieved. The FDA has reviewed
data from previous studies and has confirmed acceptability of the designs,
endpoints, and analysis plans for both new trials. The open-label,
multi-center Phase II trial is designed to confirm the efficacy of
ALLOVECTIN-7 in the defined patient population which appeared to benefit most
in earlier Phase II trials. Enrollment will be open to patients with
metastatic (spread beyond the initial site), refractory (unresponsive to
standard therapy), Stage III or IV disease that has not yet spread to
multiple internal organs. Up to 70 advanced melanoma patients will be
enrolled at approximately 15 leading cancer treatment centers throughout
North America.
The objective is a clinical partial or complete response in at least 15
percent of the evaluable patients, persisting with a median duration of at
least four months. The open-label, multi-center, randomized, controlled Phase
III trial is designed to determine the efficacy of ALLOVECTIN-7 when combined
with standard chemotherapy in patients with unresectable, metastatic melanoma
not previously treated with chemotherapy. In prior trials, ALLOVECTIN-7 was
used only after standard therapies had failed. In the new trial, patients
may be enrolled upon diagnosis or upon progression to Stage III or Stage IV
disease when surgery or radiation therapy are usually no longer curative.
Because ALLOVECTIN-7 is intended to trigger an immune response against tumor
cells, the Company believes the treatment may be more effective in patients
whose immune systems have not been compromised.
Approximately 140 patients per group, randomized by sex, age, and extent of
disease spread, will be enrolled into a chemotherapy-plus-ALLOVECTIN-7
experimental group or a chemotherapy-only control group. The objective is a
greater relative clinical benefit for the experimental group than for the
control group. Acceptable endpoints are either an improvement in the median
time to disease progression, or in the rate of objective clinical responses.
7
Results from another Phase I/II trial of ALLOVECTIN-7 suggested potential
efficacy in certain patients with unresectable head and neck cancer. A
multi-center Phase II trial with ALLOVECTIN-7 in approximately 25 patients
with unresectable head and neck cancer began in September 1997. Preliminary
results released in May 1998 for 23 evaluable patients in a company-sponsored
multi-center Phase II trial yielded one clinical complete response lasting 4
months and continuing, and 10 patients with stable disease after 2 to 4
months and continuing.
Vical is developing its second gene-based product candidate, LEUVECTIN, also
intended for direct injection into tumor lesions of cancer patients.
LEUVECTIN contains a gene that encodes the potent immunostimulator IL-2 and a
lipid material to facilitate gene uptake. The Company expects that
LEUVECTIN, when injected into tumors, will cause the malignant cells to
produce and secrete IL-2 in the vicinity of the tumor, stimulating the
patient's immune system to attack and destroy tumor cells. Because LEUVECTIN
is designed to deliver IL-2 only at the site of tumor lesions, the Company
believes that it may provide similar efficacy with fewer side effects than
systemic IL-2 therapy.
Phase I/II clinical trials testing the safety of LEUVECTIN at varying dosage
levels were completed in patients with advanced melanoma, renal cell
carcinoma, and soft-tissue sarcoma. The Phase I/II results presented in May
1998 indicated that of the 14 evaluable patients in the renal cell carcinoma
trial, two patients achieved clinical partial responses persisting for 13 to
14 months and continuing, and two achieved stable disease, yielding a total
of four out of 14 evaluable patients (29 percent) deriving clinical benefit
from treatment. Among 16 evaluable patients in the melanoma trial, one
achieved a clinical partial response persisting for 11 months and continuing,
and three achieved stable disease. Among 15 evaluable patients in the
sarcoma trial, six patients achieved stable disease. The results of these
trials indicated that the treatment is safe and well-tolerated, with no
serious treatment-related adverse events reported. Responses appeared to be
dose-related, with all clinical responses occurring in the two highest dosing
groups. In May 1998 the Company initiated a multicenter Phase II clinical
trial in patients with metastatic renal cell carcinoma. The open-label,
multi-center Phase II trial is designed to evaluate the safety and efficacy
of LEUVECTIN in up to 80 patients with metastatic kidney cancer and determine
response rate and duration.
In June 1997, the Company initiated a Phase I/II clinical trial with
LEUVECTIN in approximately 18 prostate cancer patients. The trial was
designed to test the safety and efficacy of LEUVECTIN as a potential therapy
for patients with tumors apparently confined to the prostate capsule, but
with a high likelihood of metastatic disease recurrence. Treatment with
LEUVECTIN was intended to stimulate a localized immune response against the
primary tumor and a systemic immune response against any tumor cells that may
have escaped from the capsule.
Data measurement and analysis focused on reductions in the patients' serum
levels of prostate-specific antigen (PSA) following treatment with LEUVECTIN.
PSA is a biochemical substance produced exclusively by prostate cancer cells
and used as a marker to detect and monitor the disease. Recent studies have
confirmed that PSA levels, in combination with several other factors, are
highly predictive of disease progression in post-surgical and post-radiation
patients.
Results of the trial were presented in June 1998, and indicated that
LEUVECTIN was well-tolerated and may be successful in casing targeted immune
response against prostate cancer cells. In five of 11 patients scheduled for
radical prostatectomy (complete removal of the prostate gland), serum PSA
levels decreased by at least 50 percent prior to surgery, and remained at
undetectable levels following surgery for up to 11 months and continuing.
Two additional patients experienced serum PSA reductions between 25 percent
and 50 percent prior to surgery and undetectable levels following surgery for
up to 6 months and continuing. In four of eight patients with recurrent
disease following radiation therapy, serum PSA levels decreased by at least
50 percent. Three additional patients experienced serum PSA reductions
between 25 percent and 50 percent.
8
In collaboration with Dr. Ronald Levy of Stanford University Medical Center,
the Company is developing a naked DNA anti-idiotype vaccine, VAXID, against
low-grade non-Hodgkin's B-cell lymphoma. VAXID is a DNA plasmid that encodes
the patient-specific idiotype of the B-cell tumor immunoglobulin. The
Company believes that immunization of post-chemotherapy patients with VAXID
could result in the elimination of residual disease and the prevention of the
relapse of disease. In October 1997, a Phase I/II clinical trial of VAXID
began at the Stanford University Medical Center under the direction of Dr.
Levy.
In July 1998, the Company announced the initiation of a Phase I/II clinical
trial to study the safety and potential efficacy of an experimental DNA
vaccine for patients with metastatic melanoma. The trial is being sponsored
by the National Cancer Institute under the direction of Dr. Steven A.
Rosenberg, M.D., Ph.D., Chief of Surgery. The experimental vaccine contains
a gene which may cause cells at the injection site to produce a modified
gp100 melanoma antigen. The antigen is expected to trigger an immune response
against melanoma tumor cells. In earlier studies, Dr. Rosenberg tested a
vaccine using peptides (portions of the modified antigen) in combination
therapy with interleukin (IL-2), a naturally occurring protein that
stimulates the immune system. A DNA vaccine may be more generally applicable
and may provide advantages in manufacturing and product handling.
In July 1997, the Company and PMC began a Phase I clinical trial of an
experimental naked DNA vaccine against the parasite that causes malaria. The
Company and PMC are sponsoring the trial under their Research, Collaboration
and License Agreement. The trial is being conducted by the U.S. Naval
Medical Research Institute. In April 1998, the Company released
preliminary results from approximately 20 human participants in the trial
which indicated that the vaccine was well-tolerated and safe. Preliminary
analysis of specimens from trial participants suggested a good cellular
immune response with features that the physicians conducting the trial
believe may be important in preventing the disease,
There can be no assurance that the Company's product candidates will prove to
be safe and effective in clinical trials or that any commercially successful
products will ultimately be developed by the Company.
This Form 10-Q contains, in addition to historical information,
forward-looking statements. When used in this discussion, the words
"expects," "anticipated" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, including whether the Company's product candidates will be
shown to be safe or efficacious in clinical trials, whether the Company's
corporate collaborations will be successful, and whether the Company's
product candidates will ultimately be successfully developed or receive
necessary regulatory approvals and other matters discussed in Item 1 under
the caption "Risk Factors" in the Company's Form 10-K for the year ended
December 31, 1997 filed with the Securities and Exchange Commission, which
could cause actual results to differ materially from those projected. These
forward-looking statements speak only as of the date hereof. The Company
undertakes no obligation to update these forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
RESULTS OF OPERATIONS
Revenues of $560,000 were recorded for the quarter ended June 30, 1998.
License revenue primarily consisted of payments under existing agreements
with Cardiogene and Merial and royalty revenue of $183,000. The Company
received $1,000,000 from Merial for the extension of the option on five
vaccine targets. The Company recognized as revenue $250,000 of this payment
and reflected $750,000 as current deferred revenue in the balance sheet.
This deferred revenue will be recognized over the remaining nine month option
period. The Company had revenues of $867,000 for the quarter ended June 30,
1997, consisting of license revenue of $329,000 primarily derived from the
PMC and Merial agreements, contract revenue of $393,000 from PMC and
royalties amounting to $145,000.
9
Revenues for the six months ended June 30, 1998, were $3,292,000. In
addition to the revenue recognized in the second quarter, revenue for the six
months ended June 30, 1998 also included $2,200,000 of license revenue from
Centocor, Inc., $178,000 of license revenue from amortization of deferred
revenue from PMC and Merial, contract revenue from PMC and royalty revenue of
$154,000. Revenues for the six months ended June 30, 1997, were $1,993,000
and, in addition to contract and license revenue from PMC and Merial,
and royalty revenue, included a grant from the Department of Defense of
$209,000.
The Company's total operating expenses for the quarter ended June 30, 1998,
were $4,072,000 compared with $3,678,000 for the second quarter of 1997.
Total operating expenses for the six months ended June 30, 1998, were
$8,134,000 compared with $7,369,000 for the same period in 1997.
Research and development expenses increased to $3,058,000 for the three
months ended June 30, 1998, from $2,797,000 for the same period in 1997. For
the six months ended June 30, 1998, research and development expenses were
$6,153,000 compared with $5,591,000 in the same period of 1997. These
increases in research and development expenses were generally due to
increased clinical trial costs partially offset by lower spending on external
research. An additional contributing factor for the increase for the six
months ended June 30, 1998 was royalties due to the Wisconsin Alumni Research
Foundation on the license agreement signed with Centocor, Inc. in the first
quarter of 1998.
General and administrative expenses increased to $1,014,000 for the three
months ended June 30, 1998, from $881,000 for the same period in 1997.
General and administrative expenses for the six months ended June 30, 1998,
increased to $1,981,000 from $1,777,000 for the same period in 1998. The
increases are attributable to increasing operational expenses within the
administrative area in support of the Company's expanding research and
development activities.
Investment income for the three-month and six-month periods ended June 30,
1998, was $620,000 and $1,271,000, respectively. Investment income for the
three-month and six-month periods ended June 30, 1997, was $597,000 and
$1,207,000, respectively. The increases are primarily a result of higher
rates of return on investments.
The net loss was $.19 per share for the three months ended June 30, 1998,
compared with net loss per share of $.15 for the same period of 1997. For
the six months ended June 30, 1998, the net loss was $.23 per share compared
with a net loss of $.28 per share for the same period in the prior year.
The Company expects to incur losses throughout the remainder of 1998 and to
report a net loss per share for the year ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, Vical has financed its operations primarily through
private placements of preferred and common stock, three public offerings of
common stock and revenues from collaborative agreements. As of June 30,
1998, the Company had working capital of approximately $42.1 million compared
with $44.9 million at December 31, 1997. Cash and marketable securities
totaled approximately $43.7 million at June 30, 1998, compared with $45.6
million at December 31, 1997.
The Company expects to incur substantial additional research and development
expense including continued increases in personnel costs and costs related to
preclinical testing and clinical trials. The Company's future capital
requirements will depend on many factors, including continued scientific
progress in its research and development programs, the scope and results of
preclinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patent claims, competing technological and market developments, the
cost of manufacturing and scale-up, and commercialization activities and
arrangements. The Company intends to seek additional funding through
research and development relationships with suitable potential corporate
collaborators or through public or private financing. Additional funding may
not be available on favorable terms or at all.
10
If additional funding is not available, Vical anticipates that its available
cash and existing sources of funding will be adequate to satisfy its
operating needs through 1999.
YEAR 2000 ISSUES
The Company is currently developing a plan to insure that its system and
software infrastructure are Year 2000 compliant. Key financial information
and operational systems will be assessed and plans will be developed to
address required systems modifications. Given the relatively small size of
the Company's systems and the predominantly new hardware, software and
operating systems, management does not anticipate any significant delays in
becoming Year 2000 compliant. However, the Company is unable to control
whether its current and future strategic partners systems are Year 2000
compliant. To the extent that strategic partners would be unable to procure
clinical materials or services provided by the Company, or otherwise manage
their clinical trials and research and development activities, or to pay
invoices owed to the Company, or to the extent that suppliers are unable to
manufacture and ship materials or provide requested contract services, the
Company's operations could be affected. However, at this time management has
no reason to believe that Year 2000 changes will have a material impact on
the Company's business, financial condition or results of operations.
11
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 28, 1998, the Company held its Annual Meeting of Stockholders. The
following actions were taken at the annual meeting.
1. The following Class III directors were elected:
a. Patrick F. Latterell -- 13,975,330 shares voted in favor of the
nominee, 69,740 withheld their vote.
b. Gary A. Lyons -- 13,975,980 shares voted in favor of the nominee,
69,090 withheld their vote.
c. Dale A. Smith -- 13,970,530 shares voted in favor of the nominee,
75,540 withheld their vote.
The Company's Class I directors, Alain B. Schreiber, M.D., and Philip M.
Young, will continue in office until 1999, and the Company's Class II
directors, Robert C. Bellas, Jr., Dr. M. Blake Ingle and Fred A. Middleton
will continue in office until 2000.
2. The amendment and restatement of the Stock Incentive Plan of Vical
Incorporated was approved. Shares voted for the proposal were 11,898,814,
with 2,074,568 shares voted against the proposal and 71,688 shares abstained.
3. The selection of the Company's independent auditors was ratified. Shares
voted in favor of the proposal were 14,200,616, with 18,440 shares voted
against the proposal and 24,014 shares abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
EXHIBIT 27 Financial Data Schedule
2. Reports on Form 8-K
None
12
VICAL INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Vical Incorporated
Date: August 12, 1998 By /s/ MARTHA J. DEMSKI
-----------------------------
Martha J. Demski
Vice President and
Chief Financial Officer
(on behalf of the registrant and
as the registrant's Principal
Financial and Accounting
Officer)
13
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
1. Exhibit 27 Financial Data Schedule
14